Grail’s Discount, Pfizergan & Pricing Plans: Notes from the JPM Vortex

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Allergan’s buy-it-don’t-build-it philosophy is at a disadvantage if there aren’t good scientists in-house to evaluate outside work. “You can’t recognize transformative science if you’re not doing transformative science,” Yancopoulos said. “You have to be in it to win it.”

His boss and fellow New Yorker, CEO Leonard Schleifer, said during his J.P. Morgan presentation, “It’s not innovation if you buy it.” According to Bloomberg reporter Doni Bloomfield, Schleifer was making fun of investment bankers who become pharma CEOs. For the record, Brent Saunders is not a former investment banker.

Gene Therapy’s High Bar: Annalisa Jenkins, the CEO of Dimension Therapeutics (NASDAQ: DMTX), was one of those who took a keen interest when fellow gene therapy player Bluebird Bio (NASDAQ: BLUE) said in October that the first patient with beta-thalassemia treated with an earlier version of Bluebird’s technology back in 2007 had recently required two blood transfusions. Beta-thalassemia is a blood disease that can cause anemia, meaning patients have to get frequent transfusions to survive; Bluebird’s treatment had helped that patient stave off those transfusions for more than seven years before wearing off.

Bluebird’s shares tumbled a bit, and the company’s stock has slid considerably over the past year as the current limitations of its treatment, LentiGlobin, have become more clear.

Jenkins’ interest wasn’t for competitive reasons, though. Dimension was days from going public, and the hit Bluebird took made one thing clear about gene therapy companies. “Sometimes we do seem to hold ourselves to artificially high standards,” she says.

How so? “When you take a step back and look at the actual achievement, it’s quite remarkable what’s going on,” she says. “If you were to ask that patient whether seven years of [no] transfusions fundamentally changed their lives I’m sure they would say it was a remarkable thing.”

All gene therapy companies are different, from the diseases they’re targeting to the viral “vectors” and therapeutic genes they’re using. But because the sector is still largely unproven, when one struggles, many feel the heat—Dimension, after all, had to cut its pricing goal to complete its IPO the week of the Bluebird news. “I do worry that the tide rises and falls on every day’s news,” Jenkins says. “And I think that’s a challenge for us.”

A “special discount” for Illumina’s “Grail” makes waves: Illumina kicked off J.P. Morgan on Sunday announcing an ambitious quest to develop a pan-cancer diagnostic test, one that would be used to detect disease early by finding tiny pieces of DNA cancer cells shed into the bloodstream. It’s in the form of a $100 million startup called Grail, and one thing in particular that appears to have taken others in the industry by surprise is that, per this article in The New York Times, the startup will get “a special discount from Illumina” on DNA sequencing. As the Times article noted, the cost of sequencing a whole human genome for big Illumina customers is in the range of $1,000.

According to Michael Pellini, the CEO of Foundation Medicine (NASDAQ: FMI)—an Illumina customer that has its own blood-based cancer test—that’s something that is rankling people. Pellini says he’s received “multiple phone calls from CEOs of other companies” that were taken aback by it. They were saying, “did it feel weird to you that this company is getting a special rate that our companies aren’t getting?” Pellini said. “That’s just something that doesn’t sit well with many companies.”

Pellini cautions that folks don’t have all the facts yet—but it’s something to watch out for. “It’s just reactionary, 24 hours in,” he said. “So it’s something we have to better understand.”

Digital Health: Less Arrogance, More Homework: J.P. Morgan week has long been about more than the conference inside the old Westin St. Francis hotel. Satellite conferences have sprung up around it, like the Biotech Showcase, now in its eighth year. Digital health has its own offshoot, too: The Startup Health Festival. Xconomy asked Rob Coppedge, who runs venture investments for Cambia Health Solutions, a Pacific Northwest holding company that owns health products, insurance businesses, and more, for his observations.

Based in Portland, OR, Coppedge’s group is an active digital health funder but not wholly immersed in the Silicon Valley culture that is driving so much of the sector’s investment these days. In five days of meetings this week, he noted that entrepreneurs from the tech side are no longer so arrogant about “fixing” healthcare. “Two years ago these startups would have said, ‘Technology will solve everything,’ but now they’re humble enough to do their homework,” Coppedge told Xconomy. New healthcare solutions need the “brash big thinking of the Valley” but also the “appreciation of the workflow and the realities on the ground,” he said. “There’s a reason it’s harder than just drawing on a napkin.”

One result of the Valley’s recent infatuation with digital health, with tech veterans-turned-investors like Vinod Khosla and Marc Andreessen piling in, is startups whose valuations will outstrip their worth as the fizz fades. It has already faded, in one sense: 2015 ended with $4.5 billion in digital health venture investments, only slightly more than the 2014 $4.3 billion total, according to Rock Health. That’s a dramatic slowdown from the previous increase, from $2 billion in 2013. But it’s still a huge amount of funding into a sector that until recently was used to far less generosity.

(Funding data caveat: Rock Health is a digital health investor, too, and not a neutral party. Some of what it considers digital health companies, others might count among biotech, medical device, or diagnostic companies.)

“Historically for healthcare IT and services, you managed the entry capital. But that’s not the model that’s been deployed by the bigger tech VCs,” said Coppedge. If, as he predicts, a lot of smaller companies can’t find a buyer in the ensuing months, Cambia—which as an evergreen fund run by a strategic entity doesn’t have the same exit pressures as an institutional investor—hopes to step in and help.

Photo of San Francisco’s Union Square courtesy of Sonny Abesamis via a Creative Commons license.

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